I suppose I should be getting tired of writing about enforcement actions involving nondisclosure of perquisites (for example, see here), and that you’re getting tired of reading about them. However, the topic is hard to resist, whether due to schadenfreude (look it up) or other factors.
The most recent such enforcement action, announced in late November, told a story similar to those told before – a CEO who used corporate aircraft for personal travel, used corporate credit cards for personal expenses, and so on, resulting in a failure to disclose more than $425,000 in “perks” over a two-year period. The CEO also pledged all of his company stock in violation of a shareholders agreement that required the prior written consent of the company, but that’s another story. Suffice it to say that the company and the CEO were hit with a variety of charges, including a failure to maintain accurate books and records.
If this elicits yawns or eye-rolling that we’ve seen this movie before, so be it. However, there is a twist. Specifically, the SEC’s report noted that the CEO did not disclose the relevant information in his questionnaires – and in some cases had not completed a questionnaire at all. I don’t recall the SEC focusing on the lowly D&O questionnaire in the past. Anyone who has pulled his or her hair out trying to get a director or officer to complete a questionnaire is now smiling and saying “Ha! It serves him right!” (The same goes for all those directors and officers who complete every questionnaire by saying “please fill it out for me” or “no change from last year” regardless of whether there are changes.)
However, there is another twist. Specifically, the enforcement report states that the company “did not have a formal written policy for the completion of its annual Directors & Officers Questionnaire…”. I’d like to think that this statement was not intended to mean what it seems to say, but if the SEC is seriously suggesting that companies need to have formal written policies for things like this, we are in trouble.
And it gets worse. The report goes on to say that “the company’s General Counsel was responsible for ensuring [sic] that directors and officers completed their annual D&O Questionnaire…” Given the frustrations noted above, to make the general counsel the guarantor of the questionnaire process is beyond frustrating – it’s dangerous. I hope we don’t see enforcement actions against GCs or other attorneys charging them for failing to “ensure” the completion of the questionnaire. If that happens, will the next step be an enforcement action charging the GC with the failure to get the questionnaire completed accurately?
Years ago, I was speaking at a seminar on the scintillating topic of questionnaires when someone raised her hand and asked if there was any way we could “ensure” that our directors and officers complete them. I recall laughing and saying that if I could do that I’d be able to retire. The more things change….